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Government and the Economy. Column by Prof. Jay Prag

Teaching economics is, in large part, about how government interfaces with the economy.

Models and theories of macroeconomics, the study of business cycles, show how the government can mitigate recessions with so-called fiscal stimuli. The government's size gives it the ability to borrow and spend when smaller players in the economy cannot.

Government is, thus, in all of the things that we teach in economics classes. It is big, it is uniquely capable of correcting problems in the economy and, in addition, it makes the rules that the rest of us have to follow.

But with all of that power, we often forget that it is not a "real" entity. That is to say that government consists of people whom we elect and employ to act in our interest. Government is people and, as such, its actions and decisions are not always in the best interest of the state, the country or the economy as a whole; government often makes choices that are in these elected people's own interest.

Why would the all-knowing, all-caring government that we imagine in our economics classes tell its constituents that they can retire at full pay at age 60 (sort of like Greece before its economy melted down), knowing that the country cannot afford this in the long run? The people who are the government want to be liked and re-elected. And they know that if this is going to be a problem, it won't be their problem - because the problem will occur many years in the future.

Why would a government espouse a huge tax increase on millionaires in order to increase entitlement programs, knowing that many of these millionaires will move away and that the tax increase will actually hurt the economy (like in France, with its 75 percent tax on incomes over $1 million per year)? Because the people who want to be elected manage to convince the majority of the electorate that this will help many and hurt few. They don't mention that taxing rich, mobile people will have long-run negative repercussions.

We all need government. Even as a fiscal conservative, I have never believed in the libertarian view that we would be better off without government. But government, viewed as the people that are the government, makes choices and decisions that are scarily short-sighted and predictably self-interested. Government often doesn't end up being the big corrector of all ills. It ends up being a big collection of little agents who sometimes make personal decisions that aren't good for society.

Representative government is a wonderful idea in theory. We all vote for a relatively small group of people who then make choices for those of us that they represent. These representatives, be they Senators, House members, Assembly members, or City Council members, are supposed to consider the entire group and what's best for the group in the long run. They are not supposed to split us up into skin colors or ethnicities or religions or members of organizations.

But the real world of politics is all about appealing to such groups. If a candidate appeals to enough groups whose members all vote for him, he will likely be the elected representative. His mandate is then to do everything he can for the members of those groups, even if it is bad for everyone else and for the economy as a whole.

Tax a small group of people who didn't vote for me a lot and give the money to the big group that did vote for me. And if the people I tax move away and the economy suffers, that will be later after I'm no longer a representative.

The solution might be as easy as this: Don't vote for any candidate who appears to be appealing to just you; just to the members of your group. We should be electing people who are building a strong state, a strong country and a viable, strong economy.

We, as the people who elect representatives, should have the strength to vote for what's right even if it isn't going to immediately benefit our groups.

We, the electorate, are stewards of our society and our economy. We need to vote first and foremost as members of our larger, more important special interest groups: citizens of California and citizens of the United States.